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Safeway Profits Decline in Q3

Safeway last week posted a sharp decline in third-quarter profits but said it is seeing dramatic improvements among consumers who are not regular high-volume shoppers in three of the four U.S. markets in which it has launched its lower-price campaigns. The four markets are Northern California, Southern California, Chicago and the Eastern division. In three of the four, we got

PLEASANTON, Calif. — Safeway here last week posted a sharp decline in third-quarter profits but said it is seeing “dramatic improvements” among consumers who are not regular high-volume shoppers in three of the four U.S. markets in which it has launched its lower-price campaigns.

The four markets are Northern California, Southern California, Chicago and the Eastern division.

“In three of the four, we got a very good immediate response, while in the fourth, we got a strong immediate response that subsequently softened,” Steve Burd, chairman and chief executive officer, said. He did not specify the latter market.

“While loyal customers remain loyal, we're seeing increased business from shoppers two to three levels down based on share-of-wallet,” Burd said, with overall transactions up “north of 1%” and households up “north of 2%.”

He said similar campaigns were introduced last week in two additional markets — Phoenix and Seattle; the chain's other markets are Texas, Denver, Canada and Portland, Ore.

Burd made his remarks during a conference call with industry analysts to discuss financial results for the quarter, which ended Sept. 12. In response to one analyst's question, he indicated Safeway is not featuring everyday low prices but more competitive everyday prices “with more promotions than most conventional players and good values regardless of whether items are on sale.”

He also said he expects to see more trading up among consumers, based on improved sales in premium wines and lattes, “which suggests we're at or near the bottom now.”

For the quarter, net income fell 35.5% to $128.8 million, while sales dropped 7% to $9.5 billion and identical-store sales, excluding fuel, declined 3%. For the 36-week period, net income was down 18.4% to $511.6 million, while sales fell 7% to $28.2 billion. The company did not release ID sales for the year to date.

Burd said deflation was “the single biggest factor” affecting profits and ID sales, although he indicated deflation, while still high, has moderated somewhat — with produce deflation moving from 7.5% in the second quarter to 11.2% in the third and below 8% so far in the fourth quarter.

Q3
RESULTS

Qtr Ended 9/12/09 9/8/08
Sales $9.5B $10.2B
Change -7%
Comp-store -3%*
Net Income $128.8M $199.7M
Change -35.5%
Inc./Share 31 cents 46 cents
36 Weeks 2009 2008
Sales $28.2B $30.3B
Change -7%
Comp-store N/A
Net Income $511.6M $627.4M
Change -18.4%
Inc./Share $1.21 $1.43
*ID SALES, EXCLUDING FUEL.